Saudi Arabia bet it could challenge the US when it pressed for reduced oil production at the OPEC + meeting, betting that President Trump would not strike in retaliation, despite heavy Twitter pressure ahead of the Vienna summit. This week, the bet seems to have been worth it.
Certainly, Saudi Arabia's decision to press for cuts in oil production was a bit obvious. The extreme budget pressure facing Riyadh due to low oil prices is far more worrisome than any legal or political action by the US Congress or the White House. And in the absence of an agreement in Vienna, oil prices could have fallen even more.
"Saudi Arabia today had a first Saudi policy," said Helima Croft, global head of commodity strategy at RBC Capital Markets, shortly after OPEC + announced its production cuts last Friday, market. She told CNBC that such a move would risk irritating the American president. "I think everyone at OPEC is hoping to see what President Trump will do next. Will he be quiet after this deal, or will he lead to social media and criticize OPEC? "Croft said.
Riyadh certainly weighed American interests more than at any other OPEC meeting in recent memory. The killing of Saudi journalist Jamal Khashoggi has burned many bridges in Washington, and the White House is one of the few places where Saudi Arabia can find friends.
However, it appears that cuts in oil production have not irritated President Trump enough for him to take action against Crown Prince Mohammed bin Salman. On Tuesday he rode up to the Crown Prince's defense. "He is the leader of Saudi Arabia. They have been very good allies, "Trump told Reuters in an interview. He said once again that MbS "vehemently denies" ordering Khashoggi's assassination, despite the CIA's conclusion to the contrary. Related: The Dangers of Growing Demand for Oil in China
At the end of last month, the US Senate voted to cut US support for the Saudi Arabian war in Yemen. The bipartisan consensus condemning the assassination of Khashoggi, and the role that MbS has played in it, has only grown since then. "You have to be willingly blind not to come to the conclusion that this was orchestrated and organized by people under the command of MbS," said Republican Senator Lindsey Graham last week.
Now the US Senate is considering another measure, a resolution condemning the Crown Prince for the murder. The resolution would have no practical effect, but would force Trump to sign or veto it.
Trump's support for MbS, though firm, may not have bottom to the well due to increasing pressure. "Well, I'm much more open to Yemen because, frankly, I hate to see what's happening in Yemen," Trump told Reuters. "But it takes two to tango. I would like to see Iran leave Yemen as well. Because – and I think they will.
Trump may still interfere with another large piece of legislation that has garnered strength in Congress. Non-Oil Producers and Exporters, or NOPEC Act, would allow the US government to prosecute OPEC members for antitrust violations. Legislation has been circulating in Washington for years, but often can not get enough support. Earlier presidents of both parties also opposed the various versions of a "NOPEC" bill for fear of undermining their relationship with the Saudi monarchy.
However, Khashoggi's assassination has drawn a lot of energy for the NOPEC project and Congress may even try to accept it before the end of the year. "There's a little push at NOPEC, but there's still nothing right," a US House aide said in talks to S & P Global Platts on Dec. 7. One factor working in favor of the project proponents is that the legislation, at present, is not divided by party lines. Related: 2019: a crucial year for OPEC
This is where Trump could be crucial. He has attacked OPEC several times this year, blaming them for high oil prices. He's obviously not a fan of the cartel. However, he struggled to defend MbS over Khashoggi's murder. It is not clear how he would react if Congress could change NOPEC legislation.
The only thing the Saudis have for them is the fact that OPEC + production cuts so far have failed to raise oil prices significantly. As a result, Trump may not be so angry.
Meanwhile, the Saudi economy continues to bleed at low oil prices. The FT reports that many of MbSs highly-publicized economic transformation initiatives are floundering and international investors are moving away.
Everything seems to be going wrong for MbS now. It is facing international scrutiny, oil prices have not risen even as Saudi Arabia prepares to reduce production, and Washington may continue with the injunction.
By Nick Cunningham from Oilprice.com
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